Recent Developments in Foreclosure Law
| Publication year | 1994 |
| Pages | 599 |
| Citation | Vol. 23 No. 3 Pg. 599 |
1994, March, Pg. 599. Recent Developments in Foreclosure Law
Historically, there has been a dearth of cases reported in the area of foreclosures. Cases from the 1930s or earlier often must be cited in trying to make a point or support a position. The recent relative flood of cases interpreting foreclosure statutes and rendering decisions in gray areas is refreshing.
The new-found popularity of the foreclosure system in court decisions is undoubtedly, in part, fallout from the numerous foreclosures in recent years. It is also probably a reaction to the sweeping amendments to the foreclosure statutes which became effective in October 1990 ("new statutes").(fn1) While many of the recent holdings are dependent on the facts and circumstances of each case, it is possible to draw some helpful conclusions from recent case decisions.
Interpreting the foreclosure statutes and some of the changes implemented by the new statutes are common themes in many recent cases. CRS § 38-38-106 contains a new requirement that the owner of the debt being foreclosed shall bid at least such owner's good faith estimate of the fair market value of the property being sold [subject to reduction for certain amounts related to the costs of holding and selling the property]. . . .(fn2)
In Federal Deposit Insurance Corporation v. Lichtenfels,(fn4) the court rejected the lender's claim that language in the loan documents waived the above-mentioned requirement of § 106. The Lichtenfels court stated that
[e]ven if the Promissory Note and the Contract of Guaranty could be read [to provide for a waiver of the requirement of Section 106], no language in these documents can permit a lender to disregard both Colorado statutory and case law by failing to act in good faith at a foreclosure sale.(fn5)
The court also cited the Lamutt case in support of its decision.
Two recent cases have determined when property should be valued for purposes of a sale or redemption. In Four Strong Winds, Inc. v. Lyngholm,(fn6) the court stated that the date to determine the value of the property when reviewing the propriety of a bid is the date of the sale. Franks v. Colorado National Bank-Arapahoe(fn7) involved a redemption by a junior lienholder. The court first confirmed that when a party redeems from a foreclosure sale, the proper amount to credit against that party's debt is the fair market value (or the equity, if there are senior liens) of the property.(fn8) The court went on to hold that the date to determine the value (or equity) of the property to reduce the debt is the date of the redemption.
While theoretically it seems helpful for the Franks and Lyngholm cases to establish a fixed point in time at which to determine the value of the property, the practical application of these rules may be difficult. An appraisal is the most common method of determining property value. In order for the appraisal to be useful in determining the bid amount, it must be prepared prior to the sale. Thus, the appraisal is based on information available weeks before the report is issued and values the property at a date prior to the date of the appraisal. Based on these decisions, the lender will be subject to some second-guessing as to the value of the property on the date of sale. The same comments apply to the redemption situation, one difference being that it is not common practice to obtain an appraisal when redeeming.
In Federal Deposit Insurance Corporation v. Dikeou,(fn9) the court confirmed that the new statutes do not require that a secured lender foreclose its lien. Such lenders still have an election of remedies and may choose to merely sue on the promissory note.
The court in United Guaranty Residential Insurance Co. v. Vanderlaan(fn10) held that an improper bid could not be reformed in an action under Colorado Rules of Civil...
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